The technique to utilise computer programmes (crypto trading bots) to buy and sell digital currencies on one’s behalf is known as automated crypto trading, also known as automated cryptocurrency trading. The majority of automated crypto trading platforms are application program interfaces (APIs). Furthermore, more recent crypto bots use smart contracts and function directly on the blockchain. In a conversation with FE Blockchain Akshay Bajaj, CEO, and co-founder, DeFiVerse, a fintech company talks about the advantages and challenges of automated crypto trading. (Edited Excerpts)
How will you define automated crypto trading?
Crypto bots can be used in strategies such as liquidity providing, yield farming, and crypto-options vaults are services that can be automated by bots. Crypto bots take advantage of the features of blockchain technology. Nevertheless, terms such as ‘exploits; or ‘attacks’ are used as it is usually the layman who ends up paying more due to such activities.
What are the challenges with crypto bot trading?
Unlike the traditional market, cryptocurrencies offer a completely transparent view of all transactions. This means that all information are available to everyone at all times. Bot exploits occur in the following way- The bot will scout the market for someone about to make a trade and quickly enter into the same trade before the original trader, and charge a higher rate to them. This is possible because of the way transactions are processed on blockchain (higher fees get higher priority). As these types of attacks are not illegal or even unfair, there is no good solution to them and traders must account for these slippages.
What are the advantages and disadvantages of automated crypto trading?
The advantage of automated strategies, especially in a 24by7 market, is that bots never sleep and always scour for a good trade entry. Another advantage is that bots function purely out of their algorithm, so the human element which could lead to flaws is removed from the equation.
Most bots will not make money and the profitability can only be judged over a fairly long duration of time. Another major constraint is the technology framework that a bot uses. Power and Internet outages, software updates, coding bugs, and failed transactions (which can happen in crypto) lead to inaccurate trades.
What are the security concerns related to automated crypto trading?
For a bot to function, users must grant it access to funds. This can be exploited by hackers who have compromised the bot, or who can scour the blockchain for bot signals, and try to hack those specific accounts. Moreover, the device which is running the bot might be targeted physically or through phishing attacks.